A U.S. Bankruptcy Court has approved a reorganization plan for Watertown, NY-based Knowlton Specialty Papers Inc. that will allow the papermaker to pay off all of its creditors in full. The company has also settled a claim with insurance companies stemming from a June 2002 explosion at the mill, with the recovered money enabling Knowlton to pay off creditors significantly sooner than planned.

The company has struggled since a large explosion at one of its Mill Street buildings killed a longtime employee and injured six other workers. Knowlton filed a state Supreme Court lawsuit against the Chubb Group of Insurance Companies and Royal Surplus Lines of Insurance Co. in March 2003, claiming it was owed $7.5 million for damages suffered in the blast, an event that the insurers argued was not covered.

While that matter remained unresolved, four Knowlton creditors forced the company into involuntary Chapter 7 liquidation bankruptcy in March 2004. The case was converted to Chapter 11 reorganization the following month.

A U.S. Bankruptcy Court judge in Albany recently approved the company’s reorganization plan after creditors Burns Brothers Inc., Burns Cascade Co. Inc. and E.D. Young Inc. withdrew objections to it.

In March, the company accepted a $6 million settlement total with the two insurance companies on its $7.5 million claim. That money will be used to help pay creditors.

Additional debts will also be offset from the company’s sale of its nonwovens division, Knowlton Nonwovens Inc., with operations in NY and NH.